Television: Apple’s Next Frontier (AAPL)

Posted by · August 16, 2012 2:22 pm

Apple is hardly new to the television sector. However, the company isn’t exactly known for the contributions that it has made to the same. Unlike the iPhone, iPod and iPad—each of which has become somewhat iconic in its respective market, the same can’t exactly be said of the Apple TV.

That being said, Apple has certainly shown interest in making an impact on the way people watch television. And as The Wall Street Journal’s Rolfe Winkler points out in a recent article, “The TV experience is certainly ripe for disruption.”

Drawing attention to the ongoing dialogue between Apple and cable companies, Winkler speculates that Apple may in fact be “working on a device that can be used as a set-top box to deliver a cable TV feed.”

Assuming his prediction is valid, such a move by Apple wouldn’t be at all surprising. After all, if market trends are any indicator, the home entertainment experience is shaping up to be the next big battleground. However, if Apple is looking to venture into television alongside—rather than against—cable companies, things might be slow-going at first.

“Getting consumers to be interested may be tough,” Winkler continues. “Cable companies already provide set-top boxes for as much as $15 a month, so it isn’t clear why a consumer would want to buy an Apple set-top box for perhaps hundreds of dollars. Nor are cable companies likely to subsidize the sale of Apple’s box the way wireless carriers do iPhones.”

That is, Apple will have to either make something that falls in the same cost range as current set-top boxes, or it will have to blow the current cable experience out of the water—or both. To do so would certainly make a great incentive for cable companies to work with Apple. By saving cable companies the cost of providing set-top boxes and/or making the “current, messy cable-TV experience” a lot cleaner and user-friendly (two of Apple’s key strengths), Apple could potentially prove a welcome addition to cable companies as they work to keep customers from leaving in favor of a cheaper streaming service that can be used over the internet.

As Winkler points out, this wouldn’t be the first time that Apple has intervened to save an embattled industry:

When Apple set out to remake the music business, it had already been shattered by piracy. By then consumers has much of their music in mp3 format and were in need of a compelling device on which to play it. After Apple cornered the market with the iPod, the music industry turned to it to help fight piracy and put most music content on iTunes.

Although the cable industry hasn’t quite reached that point of desperation, it’s not difficult to see how easily these companies could find themselves in a similar predicament. As cable (and satellite) providers have attempted to keep up with more popular on-demand streaming services, the user experience has become more convoluted and frustrating. Combined with the more affordable price of services like Netflix, Hulu Plus and others—which only require an Internet connection—it’s only a matter of time before a mass cable exodus ensues, especially if cable prices continue rising as they are.

Partnering with Apple may well be the solution. Or maybe Apple could just go it alone and compete with cable directly.

It certainly has the cash—some $117 billion before its historic dividend announcement—to make the investment. And as consumers become increasingly wary of Apple’s current hardware release strategy, such an investment may prove to be an expedient way for Apple to maintain the cult-like allure that has, in no small way, contributed the company’s success to this point.

The only thing that really stands in the way, however, is content. On one hand, Apple could go the way of other services and work directly with entertainment companies to license content and build its content offerings from the ground up.

Or, as Market Watch’s Rex Crum suggests, Apple could avoid such a pricey headache and just buy Netflix instead.

For more on Apple and its television aspirations…